After many years of debate the new Consumer Rights Act 2015 ('the Act') will finally come into force on 1st October 2015.
The Act replaces existing consumer legislation including the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 as well as consolidating consumer rights and remedies in respect of goods, services, and digital content and unfair terms in consumer contracts.
The Act outlines a clearer route for consumers interested in understanding their rights and remedies and clarifies the periods for repair, replacement and rejection of goods.
The Act will have a great effect on the automotive industry. Many of the changes may have a financial impact on automotive manufacturers and retailers alike.
Consumer rights consolidation
The Act consolidates existing consumer rights that goods must be:
- of satisfactory quality
- fit for purpose
- as described
- matching any sample
- in accordance with information provided before the contract was agreed
The Act sets out an entirely new regime of remedies. There is a new "tiered system" of consumer remedies.
What is the remedy?
Within 30 days
A short-term right to reject
The consumer has 30 days to reject a vehicle if it breaches the implied terms in any way. Whilst the consumer can ask for the goods to be repaired or replaced the consumer is not obliged to give the retailer an opportunity to do so. This means that for comparatively minor problems with a vehicle (for example a breach of the implied terms that goods are of satisfactory quality or free from minor defects) the consumer is able to reject without providing the seller an opportunity to repair. This is particularly complicated for the automotive industry where the devaluation of a new car (once it rolls off the forecourt) can cost retailers and manufacturers many thousands of pounds if rejected within 30 days.
After 30 days
- Repair or replacement
The seller will have one opportunity to repair or replace the vehicle, before moving to the next tier of remedies ("the one shot rule") If a repair or replacement is impossible, or the first attempt fails (or the first replacement is also defective), the consumer has the right to step up to the next remedy below. Critically if one defect is repaired and another entirely different defect arises the consumer will still be able to escalate to step 2 below.
- A final right to reject
Once the 30 days period has expired, if the "one shot" repair or replacement has not remedied all issues the customer can reject the vehicle.
What this means for the automotive sector?
The one shot rule and expanded right to reject is likely to have an immediate impact on the automotive sector. The Society of Motor Manufacturers and Traders and Motor Codes have both argued that these changes are unreasonable when you consider the complexity of modern automotive vehicles.
Within 30 days
Within the first 30 days minor issues that would have historically been dealt with under a manufacturer's warranty will now entitle the consumer to reject the vehicle without the retailer being given an opportunity to repair.
After 30 days
After the initial 30 day period has expired, if one very minor problem arises which is readily repairable in the usual way the seller will have used up its "one shot" at a repair or replacement.
Refund not repair or replace
If another repair issue arises in the future the consumer can exercise their right to reject without giving the manufacture or retailer a chance to make the repair fixing the second issue. Retailers and manufactures could lose many thousands of pounds as the rejected vehicle can no longer be sold as new (even though the cost of repairing it could be very minimal).
Consumer entitlement to all goods and monies paid
When they reject the vehicle, the consumer is entitled to all goods and monies it paid for it. A problem arises where a consumer has part exchanged a second hand vehicle as this may no longer be in the retailer's possession. The Act provides no guidance as to how the automotive industry should deal with this type of problem (which is likely to be a comparatively frequent occurrence).
Deduction for consumer use of vehicle
If a customer rejects a vehicle, any refund may be reduced by a deduction for the customer's use. The automotive industry is one of the few industries which allow this deduction for use from the expiry of the first 30 day period (most industries are only allowed to apply this after six months).
Retailers and manufacturers can deduct an amount of money from the refund to take account of the use the consumer has had of the vehicle since it was delivered.
The big question: how to calculate the deduction?
This deduction will be calculated as the value of the use of the vehicle the customer has enjoyed since it was delivered to them. It is unlikely to be the full diminution of value of a new car rolling off the forecourt.
There will undoubtedly be many disputes with customers disputing the value of the reduction that retailers and manufacturers apply for the use consumers have had of a rejected vehicle.
What should be done?
The Act is unclear in number of areas which may cause problems for the automotive sector. The government will produce and publish statutory guidance shortly.
Manufacturers and retailers alike should take steps in advance of 1st October 2015 to ensure that they have minimised these future risks:
- Review and amend standard contract terms (including order forms with terms and conditions printed on the reverse) to ensure that:
- they are compliant with the new Act
- there are no terms that conflict with the new consumer rights
Remember there is no obligation to explain the new rights and remedies to the consumer
- Manufacturer's warranties and retailer terms and conditions should clarify that the consumer's statutory rights are not affected
- Consider internal/retailer policies for deduction for use. Unhelpfully little guidance has been given as to how the "deduction for use" will be calculated. Whilst there will undoubtedly be disputes as to how to calculate this sum, retailers can minimise disputes by ensuring consistency within their company and ensure that one policy is adopted nationally. If different retailers within a group adopt different approaches this will encourage further confusion as well as potential interest from consumer groups such as Watchdog.
- Consider resources required to support customer service operators
- Consider how your business will manage cash flow, particularly where large refunds are due under the second and potentially cash flow considerations
- Train your staff to ensure they are fully up to speed with the Act in advance of 1st October 2015. We have already worked with many leading automotive manufacturers and their legal training to automotive legal teams and front line staff.
Our team has provided many leading automotive manufacturers and retailers clients with pragmatic advice on how the Act will affect their business, and has worked with them to devise realistic plans to ensure they can prepare for the implementation of the legislation.
If you are in any doubt about what your business can do now to comply with the requirements of the Consumer Rights Act and its application to the automotive sector, Paul Kirkpatrick, Jonathan Smart and our Dispute Resolution and Compliance team are here to help.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.